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Traditional methods of sourcing deals—like broker-led auctions and self-serve databases—are becoming less and less effective. Relying on these sourcing methods alone might've worked 10 years ago, but to stay competitive, firms must adopt new, differentiated deal sourcing tactics.
What's the issue with the above channels?
First, they often offer limited visibility and are crowded with bidders, driving up prices and reducing the potential for value creation.
As a result, many private equity firms find themselves in a frustrating cycle: chasing deals that are either too expensive or not strategically aligned with their thesis/platform.
SourceCo's CEO, Tomos Mughan, weighs in on the competitive intensity on his LinkedIn. Click on this link to learn about the best PE data practices we follow at SourceCo.
The real opportunity for success lies in proprietary deal flow—a method that uncovers off-market opportunities, long before they are widely marketed.
Instead of competing with numerous other buyers in an auction, proprietary deal flow provides access to high-fit, off-market targets that align with a firm’s specific strategy. This results in better pricing, more flexible deal terms, and less competition.
As Dan Kobayashi, SourceCo's President puts it:
“If you’re relying solely on brokers, you’re only seeing what’s being marketed. You’re missing the vast majority of companies that don’t even know they’re potential targets.”
The below graphic of SourceCo's ability to uncover companies others miss visualizes the scale and depth limitations of traditional approaches vs SourceCo's proprietary deal sourcing:
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Proprietary deal flow changes the game by focusing on relationship-based sourcing, where long-term outreach and strategic networking uncover hidden, often off-market opportunities that traditional methods miss.
Proprietary deal flow's benefits include:
Private equity firms have long relied on self-serve databases like PitchBook and Capital IQ, as well as broker-led auctions, to source acquisition targets.
While these methods offer convenience and surface-level visibility, in today's deal environment, they are simply insufficient. Firms relying solely on these channels often find themselves missing out on high-value opportunities and overpaying for targets.
As Dan Kobayashi aptly explains,
“Self-serve databases and broker-led processes are like fishing in a small pond. Sure, you might catch something, but you’re competing with every other fisherman for the same fish. The real value—the big fish—are in the oceans you don’t have access to unless you look deeper.”
Self-serve databases like PitchBook and Capital IQ have become ubiquitous tools for deal sourcing, providing easily accessible company data. However, there are several critical limitations with these platforms:
While databases offer access to a large pool of companies, they are inherently limited by their scope. Many smaller, privately-held companies, particularly in niche or fragmented markets, are either absent or poorly represented.
Tomos explains:
“The biggest problem with databases like PitchBook or Capital IQ is that they only show you what’s on the surface. These databases are a great starting point, but they miss the majority of smaller, family-owned businesses or companies that aren’t actively being marketed. We’ve seen countless opportunities overlooked because the right data wasn’t available at the right time. If you’re not using proprietary methods to dig deeper, you’re leaving tremendous value on the table.”
When private equity firms rely on database leads, they often find themselves caught in outreach inefficiencies. These databases can be oversaturated, with numerous firms targeting the same companies, leading to diminished response rates.
The below post by SourceCo's CEO summarizes the outreach problem. Click here to read the whole post.
Related:
Broker-led auctions are another common method used by PE firms to source deals, but they present significant challenges that can undermine value creation.
Broker-led processes attract a wide array of bidders, from other private equity firms to strategic buyers. This heightened competition often leads to overpriced acquisitions, eroding the value that could be created post-acquisition.
Daniel explains:
“When you’re in a brokered process, you’re not the only one at the table. You’re sitting there with a dozen other bidders, all trying to outdo each other. It’s a race to the top—not in terms of value, but in terms of price. You end up overpaying, and that squeezes your margins from day one.”
And when it comes to deal structures, in an auction, sellers have the upper hand. The process is driven by the broker, and buyers have little say in deal terms or how the transaction is structured.
In a broker-led auction, the visibility of the deal means everyone is aware of it, leading to higher valuations and fiercer competition. This level of exposure limits the ability to negotiate favorable terms.
Additionally, highly marketed deals attract too many bidders. Companies that are shopped around by brokers are widely exposed, which inflates the price. Even if the asset aligns with a firm's strategy, it’s often difficult to secure it without compromising on valuation and paying above-market.
When buying through a broker-led process, PE firms often lose the flexibility to structure deals in creative ways. Sellers are often focused solely on the price, and flexibility around earn-outs, seller financing, or other creative structuring mechanisms becomes difficult.
Tomos shared:
“In a brokered deal, you’re playing by the seller’s rules. They want to close the highest price possible, with the most aggressive terms. If you’re looking for flexibility—whether it’s seller financing or an earn-out—you’ll have to get in line behind all the other bidders.”
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The inefficiencies in both self-serve databases and broker-led auctions are becoming more apparent as private equity firms strive to source high-quality, off-market deals. These traditional methods have created a bottleneck in deal flow, with too many firms chasing too few opportunities.
To stay competitive, private equity firms need to adopt proprietary deal flow strategies that go beyond what’s visible in traditional channels. Proprietary deal flow opens the door to less visible, higher-value deals that offer better pricing, more flexible structuring, and long-term success.
The challenges posed by traditional deal sourcing methods—over-reliance on self-serve databases, inefficiencies in outreach, and the high costs associated with broker-led auctions—are increasingly making proprietary deal flow a must-have strategy for private equity firms. By focusing on long-term relationship building, off-market targeting, and precision outreach, proprietary deal flow delivers results that standard sourcing methods simply cannot match.
Tomos adds:
“Proprietary deal flow is the antidote to an overcrowded, overpriced market. When you build relationships with owners over time, you’re not just one of the many bidders at an auction—you’re the trusted partner they call when they’re ready to sell.”
Traditional databases, while useful as starting points, leave a large portion of the market untouched. Proprietary deal flow goes beyond what databases offer, focusing on off-market opportunities that aren’t visible to most.
Unlike databases, which often focus on publicly visible companies, proprietary deal flow uncovers high-quality, off-market targets. These are businesses that aren’t actively seeking a sale and often don’t even know they are acquisition targets.
Dan explains the process we follow at SourceCo:
“The companies we target with proprietary sourcing aren’t the ones you’ll find in a database. They’re privately held, family-owned businesses—often in fragmented markets—that haven’t been approached before. That’s where the real value lies.”
Proprietary deal flow thrives on relationship-building, not transactional outreach. Instead of cold outreach to database-listed companies, firms invest in long-term engagement with business owners, understanding their goals, and positioning themselves as trusted advisors.
Tom added:
“You don’t build a proprietary deal pipeline overnight. It’s about nurturing relationships over time—sometimes years—by understanding what the owner cares about, providing value beyond just acquisition, and staying top of mind for when they’re ready to have that conversation. Proprietary deal flow is about relationships, not just leads.”
Many private equity firms rely on in-house BDR (Business Development Representative) teams for deal sourcing, but these teams often face significant challenges in generating meaningful deal flow. Proprietary deal flow offers a more efficient, targeted alternative.
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BDR teams tend to rely on high-volume, transactional outreach strategies that don’t yield consistent results. Proprietary deal flow changes the approach by shifting the focus from cold, impersonal outreach to precision-based targeting and relationship nurturing. Dan said:
Traditional outreach from in-house BDR teams often feels impersonal and transactional. Business owners can sense when they’re just another lead in a long list. Proprietary deal flow takes a different approach—it’s about deepening relationships over time, so that when the moment comes, you’re the natural choice.”
Rather than casting a wide net, proprietary deal flow allows PE firms to focus on high-fit targets—companies that are strategically aligned with their platform and growth strategy. This targeted approach ensures higher-quality conversations and, ultimately, better acquisition outcomes.
In broker-led auctions, PE firms often face fierce competition and inflated pricing. Proprietary deal flow helps avoid these pitfalls by bypassing the auction process entirely and creating opportunities for negotiated deals.
In a competitive auction, the pressure to outbid others drives up prices, often leading to overpayment.
In contrast, proprietary deal flow allows PE firms to negotiate directly with business owners, resulting in better pricing and more flexible terms.
“When you’re sourcing deals through proprietary channels, you’re not paying the premium that comes with a competitive auction. You’re having conversations with the seller about what’s best for both parties, which often leads to more creative, flexible deal structures. Maybe that’s seller financing or an earn-out—it’s whatever works best for both sides.”
Related reading:
Proprietary deal flow minimizes competition. By the time a deal is public through brokers, multiple bidders are in the race, which slows down the process and drives up the price. Proprietary deals, on the other hand, involve direct engagement with the owner, which leads to faster, more exclusive deal opportunities.
For examples, at SourceCo, we focus on nurturing long-term relationships with business owners early, before they ever consider entering a brokered process. This ensures that when they are ready to sell, we're already positioned as the buyer of choice.
Dan added:
“Proprietary deals move faster because there’s no bidding war. We’re able to negotiate directly with the seller, often cutting months off the closing timeline.”
The real strength of proprietary deal flow lies in the relationships that private equity firms build over time with potential targets. It’s not about finding deals—it’s about cultivating opportunities through strategic, patient engagement.
Developing strong, trusted relationships within specific industries allows PE firms to access proprietary deal flow that others can’t. By positioning themselves as industry insiders with a track record of value creation, firms can build a steady pipeline of off-market opportunities.
“The best proprietary deals we’ve sourced at SourceCo have come from years of networking and relationship-building in specific industries. When business owners know and trust you, they come to you—not the other way around.”
Effective proprietary deal flow isn’t about transactional outreach—rather about personalized, trust-building conversations that focus on the long-term goals of business owners.
This is where firms should develop a personalized outreach strategy that focuses on value first—whether that’s sharing insights, connecting business owners with resources, or simply staying in touch regularly. The goal is for the firm to provide ongoing value long before any acquisition conversation happens.
Proprietary deal flow gives private equity firms far more control over the entire deal process than deals accessed via traditional methods, helping them uncover better deals, negotiate more favorable terms, and avoid the pitfalls of competitive bidding wars. As Dan puts it:
“Proprietary deal flow gives you the advantage. You’re not fighting 10 other bidders in a race to overpay for an asset. You’re having a real conversation with the owner about their business, their vision, and how you can work together to achieve something bigger.”
Related reading:
One of the key advantages of proprietary deal flow is that it allows PE firms to focus on niche markets and fragmented industries that are often overlooked by larger, more generalized buyers. By specializing in particular sectors, firms can develop deep expertise and uncover opportunities that would otherwise remain hidden.
Rather than chasing after every potential acquisition target, proprietary deal flow is about focusing your efforts on sectors where you have a competitive advantage. Whether it’s healthcare, specialty manufacturing, or technology, focusing on a specific industry allows firms to build strong relationships, better understand market dynamics, and ultimately source better-fit targets.
Dan explains:
“The best proprietary pipelines are built around industry specialization. When you focus on a niche, you’re able to go deeper than anyone else. You’re not just seeing what’s on the surface—you’re uncovering companies that aren’t even aware they’re potential targets because you understand the market better than anyone.”
The more you specialize, the more likely you are to uncover off-market opportunities.
Developing strong networks within your chosen sector is crucial. This includes attending industry-specific conferences, joining trade associations, and building relationships with advisors, attorneys, and accountants who can introduce you to business owners well before they consider selling.
For example, firms can prioritize attending industry events where you can meet decision-makers in person and establish long-term connections. This creates multiple touchpoints that allow your firm to engage with business owners well ahead of any sale.
At the heart of proprietary deal flow is relationship-building. Unlike traditional deal sourcing methods, where transactions are often cold and transactional, proprietary deals come from years of engagement and trust-building with business owners.
By maintaining long-term relationships, PE firms position themselves as the first call when owners are ready to sell.
Business owners, especially those who have built their companies from the ground up, are often hesitant to sell. Proprietary deal flow requires a patient, long-term approach to building trust with these owners. Rather than pushing for an immediate deal, firms should focus on nurturing relationships over time by offering value in other ways—whether through industry insights, strategic advice, or connecting them with helpful resources.
Tomos shares:
“When you take the time to build relationships with owners—long before they’re ready to sell—you’re positioning yourself as a trusted advisor, not just a buyer. That trust is what gets you the call when they finally decide to explore their options.”
Building and maintaining these relationships requires consistent, multi-channel outreach. Whether it’s phone calls, in-person meetings, or staying connected through industry events, it’s essential to stay top of mind without being overly aggressive.
Firms can develop a relationship management schedule where you check in with potential targets regularly, whether through informal calls or providing useful updates on market trends.
Proprietary deal flow requires a more targeted, thoughtful outreach strategy than the high-volume, cold outreach often employed by in-house BDR teams. The goal is to engage with business owners in a meaningful way, turning cold prospects into warm, trusted relationships.
Instead of sending generic emails or cold calls, proprietary deal flow outreach focuses on personalization and adding value from the very first interaction. By offering insights into market trends, competitive analysis, or industry opportunities, firms can engage business owners in a conversation rather than just pitching a deal.
Dan weighs in:
Owners don’t want to be pitched—especially not by someone they don’t know. What they’re looking for is a partner who understands their business and can offer something of value, even if it’s just advice on the market. That’s what turns a cold outreach into a warm relationship.”
By researching the company in-depth upfront, firms can use that knowledge to offer something valuable upfront, whether it’s a unique insight or a connection to a useful resource, and ailor every outreach to the specific needs and concerns of the business owner.
Building a proprietary deal flow pipeline is only half the battle—maintaining it requires consistent effort. Firms need to ensure that they’re continuously nurturing relationships, expanding their networks, and staying engaged with potential targets to keep the pipeline flowing.
Once a relationship is established, it’s crucial to maintain regular communication with business owners. This doesn’t mean constantly pushing for a sale but rather offering ongoing value, whether through market insights, industry analysis, or advisory conversations.
Proprietary deal flow isn’t a one-and-done effort. It’s about continually staying in touch, offering value, and reminding business owners that you’re there for them—whether they’re ready to sell now or five years from now.”
And even when a strong pipeline is in place, it’s important to keep expanding the network. Reaching out to new industry contacts, building relationships with intermediaries, and continuously seeking out new connections within your specialized sectors all contribute to your future pipeline.
SourceCo specializes in delivering high-quality, off-market opportunities that align perfectly with your growth strategy.
Our proprietary deal flow pipeline gives you access to off-market targets that others can’t see, bypassing broker-led auctions and generic company databases. With a focus on industry specialization and long-term relationship building, we help you secure better deals with more favorable terms, giving you a competitive edge in a crowded market.
Curious about untapped targets? Schedule a free call to find a pre-vetted fit even in the most niche of searches
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